Direct Property vs Property Funds
Property has long been a popular investment for Australians, however there are different ways to gain exposure to the property market. While many investors are familiar with purchasing a property directly, others choose to invest through a professionally managed property fund.
Both approaches provide exposure to property, but they differ in how the investment is owned, managed and maintained.
Buying a property directly means you own the asset yourself. A property fund, on the other hand, pools money from multiple investors to invest in one or more properties that are professionally managed on behalf of investors.
Investing through a property fund
A property fund allows investors to gain exposure to property without purchasing an individual property themselves. Money from investors is pooled and invested in property assets, with a professional investment manager responsible for selecting and managing the investments.
Rather than owning the underlying properties directly, investors generally hold units in the fund. Depending on the fund, investors may receive income through distributions and may also benefit if the value of the fund’s underlying assets increases.
How Returns are Generated
Investors may receive distributions from income generated by the fund’s underlying properties. The value of an investor’s units may also change as the value of the fund’s assets changes.
Investing in property directly
Direct property investment involves purchasing and owning an individual property. The investor chooses the property and retains control over decisions relating to the asset, while also taking responsibility for its financing, costs and ongoing management.
Returns may come from rental income and any increase in the property’s value over time. Direct ownership can also involve periods of vacancy and ongoing costs such as rates, insurance, property management, repairs and maintenance.
How Returns are Generated
Rental income is generally received directly by the property owner. If the property increases in value, the owner may also realise a capital gain when it is sold.
How do the two options compare
Both options provide a path into property investment with, each offering a different way to own, manage and gain exposure to property
Through a property fund
How the investment is held: When you invest in a property fund, you buy units in the fund. Those units give you exposure to the property or properties held by the fund, which may include commercial, retail, industrial or residential property, alongside other investors.
Who manages the property investment? The investment manager is responsible for selecting and managing the properties held by the fund. This can include rental collection, maintenance, administration and improvements to the properties.
What the investment gives you exposure to? Depending on the fund, your investment may give you exposure to one property or a mix of properties across different locations and property types.
Through Direct Property
How the investment is held: When you invest directly, you purchase and hold a specific property. Your investment is centred around that individual asset, including the rental income it may generate and any changes in the property’s value over time.
Who manages the property investment? The property owner is responsible for how the property is managed. This can include arranging tenants, rent collection, maintenance, repairs and other day-to-day requirements, either directly or with the support of a property manager or other professionals.
Who manages the property investment? Your investment gives you exposure to the property or properties you purchase, including the rental income they generate and any changes in their value over time.
Key Considerations
Every property investment is different. Understanding how each investment is managed, together with its fees and costs, can help investors make informed comparisons.
Before investing, it's important to understand how each investment operates, the costs involved and the level of involvement required. Understanding these differences can help investors determine which approach best aligns with their investment objectives and circumstances.
Please note
This article has been prepared by Selfund for general information and education purposes only.
It has been prepared without taking into account your individual objectives, financial situation or needs. Before making any investment decision, you should consider whether the information is appropriate for your circumstances and seek independent professional advice where appropriate.